Correlation Between Microsoft and Everest Group

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Can any of the company-specific risk be diversified away by investing in both Microsoft and Everest Group at the same time? Although using a correlation coefficient on its own may not help to predict future stock returns, this module helps to understand the diversifiable risk of combining Microsoft and Everest Group into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Microsoft and Everest Group, you can compare the effects of market volatilities on Microsoft and Everest Group and check how they will diversify away market risk if combined in the same portfolio for a given time horizon. You can also utilize pair trading strategies of matching a long position in Microsoft with a short position of Everest Group. Check out your portfolio center. Please also check ongoing floating volatility patterns of Microsoft and Everest Group.

Diversification Opportunities for Microsoft and Everest Group

0.01
  Correlation Coefficient

Significant diversification

The 3 months correlation between Microsoft and Everest is 0.01. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and Everest Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Everest Group and Microsoft is a relative statistical measure of the degree to which these equity instruments tend to move together. The correlation coefficient measures the extent to which returns on Microsoft are associated (or correlated) with Everest Group. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Everest Group has no effect on the direction of Microsoft i.e., Microsoft and Everest Group go up and down completely randomly.

Pair Corralation between Microsoft and Everest Group

Given the investment horizon of 90 days Microsoft is expected to generate 0.94 times more return on investment than Everest Group. However, Microsoft is 1.06 times less risky than Everest Group. It trades about 0.05 of its potential returns per unit of risk. Everest Group is currently generating about -0.07 per unit of risk. If you would invest  42,375  in Microsoft on September 23, 2024 and sell it today you would earn a total of  1,285  from holding Microsoft or generate 3.03% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthInsignificant
Accuracy97.73%
ValuesDaily Returns

Microsoft  vs.  Everest Group

 Performance 
       Timeline  
Microsoft 

Risk-Adjusted Performance

1 of 100

 
Weak
 
Strong
Weak
Compared to the overall equity markets, risk-adjusted returns on investments in Microsoft are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable technical and fundamental indicators, Microsoft is not utilizing all of its potentials. The current stock price uproar, may contribute to short-horizon losses for the private investors.
Everest Group 

Risk-Adjusted Performance

0 of 100

 
Weak
 
Strong
Very Weak
Over the last 90 days Everest Group has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, Everest Group is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Microsoft and Everest Group Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Microsoft and Everest Group

The main advantage of trading using opposite Microsoft and Everest Group positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Microsoft position performs unexpectedly, Everest Group can make up some of the losses. Pair trading also minimizes risk from directional movements in the market. For example, if an entire industry or sector drops because of unexpected headlines, the short position in Everest Group will offset losses from the drop in Everest Group's long position.
The idea behind Microsoft and Everest Group pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.
Check out your portfolio center.
Note that this page's information should be used as a complementary analysis to find the right mix of equity instruments to add to your existing portfolios or create a brand new portfolio. You can also try the AI Portfolio Architect module to use AI to generate optimal portfolios and find profitable investment opportunities.

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